Sunday, January 31, 2010

US Postal Service to declare bankruptcy? - (www.asianjournal.com) THE USPS lost $2 billion last year. This year, so far, it has lost $7 billion. The increase in the price of stamp recently to 42 cents will not stop the hemorrhage of cash. The USPS will continue to lose money at an alarming rate in the future. Electronic mail has become the preferred means of communication between humans because not only is there no delay in getting the message to the other side, it’s also free. On the other hand, the cost of mailing out a letter that will get to it’s destination in several days is the cost of an envelope, 42 cents for the stamp, gasoline to get to the post office, depreciation of your car because you use it to get to the post office, and at least half an hour to get to the post office and back to your house. Thus, people now prefer to pay their bills electronically, text their friends, send emails and twitter. All of these activities are being done at the expense of the post office. Communicating by paper and mail is getting less everyday. Think of Kodak film and Polaroid cameras. Once the behemoths of business and industry now obsolete because of digital cameras. An advance in technology, particularly communication technology, has rendered the USPS practically obsolete. There will come a time when people will only mail packages, not letters. The writing is clearly on the wall. Thus, the recent announcement by the General Accounting Office that the USPS is in danger of financial insolvency should not come as a surprise to anybody. It’s not a good time to the Postmaster General. He had to ask for permission from Congress to stop delivering mail on Saturday to cut costs. US mail volume sank by 13 percent this year, about 20 billion fewer pieces of mail. Unfortunately for the USPS, mail volume will continue to sink until everyone starts using electronic mail to communicate with each other. When this happens, and it surely will, the USPS will be left with mailing packages and doing passport pictures. This is of course, the worst news for the 700,000 employees of the USPS who will have to start thinking of working for UPS and change their uniforms from blue and white to brown, and driving a large parcel truck, instead of a small mail truck. They might do well to start sending their resumes to UPS and Fedex by email now. A bankruptcy reorganization for the USPS where thousands of post offices will be freed of their lease contracts, collective bargaining agreements voided or drastically amended to conform with the new USPS, and a significant number of employees terminated without separation pays, and perhaps even a doubling of the price of stamps to one dollar or more is in the horizon.

States battle deficits with payroll cuts - (www.sacbee.com) In Rhode Island, they're delaying pay raises. In Nevada, state college teachers took a 4.6 percent pay cut. New Jersey state workers are taking 10 furlough days this year – although they'll get back seven days of paid leave later. Across the country, state government leaders are cutting employee compensation and eliminating jobs to spackle over parts of their respective budget holes. Now, with the 2010 elections revving up, political candidates and lawmakers in the Golden State and elsewhere are talking more and more about thinning the number of state workers or cutting their pay and pensions. A big reason: It's easier to talk about axing a subset of faceless workers than to talk in detail about service cuts. "Look, government workers are a logical target because the government is so big, it's hard to wrap your mind around it," said political pollster Steve Kinney, a partner with Redondo Beach-based Public Opinion Strategies. "And in the eyes of people in the private sector – both union and nonunion, Republicans and conservative Democrats – government isn't valuable."

Director of EQT Partners found slain in Munich - (www.latimes.com) A director of private equity firm EQT Partners who previously worked for Morgan Stanley was slain and his body discovered in a delivery van in a Munich suburb, a police spokesman said. The body of Dirk von Poschinger-Camphausen, 36, was found in the southwest of the Bavarian capital early Saturday, Munich police spokesman Markus Dengler said in a phone interview Sunday. His Audi A8 sedan was found near the body. Dengler declined to say how Poschinger-Camphausen was killed or whether police know of a motive. "There's no doubt that he was murdered," Dengler said. More than one suspect has been arrested and appeared before a custodial judge in Munich, Dengler said. Poschinger-Camphausen joined the Munich office of Stockholm-based EQT last year after four years at Morgan Stanley in Frankfurt. He was last seen alive Thursday when he left his apartment in the Munich suburb of Bogenhausen about 9:30 a.m., Dengler said. His wife reported him missing that afternoon.

Schools fear cuts to campus repairs - (www.sacbee.com) Gov. Arnold Schwarzenegger's plan to cut education by $1.5 billion next year will lean heavily on school districts' funds for campus maintenance and repairs. The governor said he wants districts to cut central administration to avoid hits to the classroom, but a Bee analysis of the funds that Schwarzenegger considers "central administration" shows the largest category is plant maintenance, covering everything from the salaries of electricians and plumbers to buckets of paint and boxes of nails. School district administrators say cuts to facility maintenance and repairs would be devastating, especially for aging schools. "Most of our schools are over 50 years old," said Trinette Marquis, spokeswoman for the Twin Rivers Unified School District. "Fifty-year-old buildings can fall apart really fast."

Chavez orders takeover of French hypermarket chain - (www.signonsandiego.com) Hugo continues to lose his mind. President Hugo Chavez on Sunday ordered the expropriation of a French-owned hypermarket chain that operates close to a dozen stores in Venezuela, accusing it of price speculation following the country's currency devaluation. Chavez said his government would seize control of the Exito hypermarket chain, majority owned by France-based Casino Guichard Perrachon SA, after lawmakers approve legislation allowing the expropriation of businesses that have raised prices inordinately. A conglomerate of Colombian companies - Sindicato Antioqueno - holds a minority share of the company. "I want a file to be opened, and I'll wait for the new law to begin the expropriation of the Exito chain because this cannot be permitted," Chavez said during his weekly radio and television program. "How long are we going to allow a transnational company ... to come here and do this?" Calls to the offices of Exito seeking comment went unanswered on Sunday. Victor Maldonado, who leads the Caracas Chamber of Commerce, Industry and Services, criticized Chavez's announcement, saying government takeovers of private businesses will only exacerbate Venezuela's economic woes. "The president must correct his economic policy," Maldonado told Union Radio, saying Chavez's socialist-orientated economic policies and efforts to boost the state's role in the economy "are going to ruin us." The bill proposed by Chavez could be approved next month, pro-Chavez lawmaker Mario Isea told the state-run Bolivarian News Agency on Sunday.

Making mincemeat from a mogul: More people sue Donald Trump over Tampa Tower - (www.tampabay.com) Another flock of Floridians has joined a lawsuit against Donald Trump, alleging the New York real estate tycoon defrauded them of their deposits on the never-built Trump Tower Tampa. To recount, Trump licensed his name to developers of the proposed 52-story luxury condo tower in return for half the profits. But at the launch of the $300-million project in 2005 The Donald's braggadocio may have gotten the better of him. On at least one occasion he was quoted in the press suggesting he was a partner and developer in the project.

Digging out banks and builders - (www.tampabay.com) You think the housing bust's done you wrong? Pity the poor banks and home builders. We spare little sympathy for these businesses. They triggered the explosion that demolished the economy, didn't they? They overbuilt, overcharged, overlent and underperformed. And left us with the cleanup bills. But the rise and fall of Tampa Bay's housing and banking industries has been shocking. The gods of commerce have been vindictive. The first two weeks of 2010 have brought little but bad news: BUILDERS: Tampa's Metrostudy reported this week that new home starts have declined 83 percent in four years. Back in 2005, when speculators were immersed in their "I'll take five homes, please" mania, Tampa Bay housing starts exceeded 21,000. Last year local builders barely scraped up 3,500 buyers. Luxury home builders took a double hit. Sales in the 3,500-square-foot-plus category have dribbled down to near nothing. And demographics don't look good for a quick turnaround. Baby boomer retirees, the first of which turn 65 next year, are in a downsizing mood. How did builder/developers' land-buying gambles during the housing boom pay off? Horribly. Tampa land broker Bill Eshenbaugh said builders that bought Pasco and Hillsborough County orange groves and ranches at the price peak are dumping them for a fifth of what they paid.

Saturday, January 30, 2010

Bank of America to release homes‎ - (www.lvrj.com) Bank of America expects to release about 6,000 foreclosed properties into the Nevada housing market in 2010, or about 500 a month, an executive with the bank said Wednesday. It's part of the so-called "phantom inventory" of foreclosed homes being held by banks as they work out loan modifications and negotiate short sales, two of the more desirable alternatives to foreclosure. Throughout the country, estimates of homes being taken back by Bank of America range from 11,000 to 14,000 a month in the early part of this year to 29,000 to 35,000 by November and December, said John Ciresi, vice president and portfolio manager for Bank of America in Towson, Md. The system became "clogged" by a voluntary moratorium on foreclosures while banks met the requirements of President Obama's Making Home Affordable mortgage plan program and by state legislation requiring mediation before banks can start the foreclosure process, Ciresi said at a panel discussion sponsored by the Nevada chapter of the National Association of Hispanic Real Estate Professionals. Some homes are being held back from closing escrow because of Bank of America's fiduciary relationship with investors, he said. "Let's say you have a $120,000 property and you have a $110,000 offer from a cash buyer and a $120,000 offer on a VA loan," Ciresi said. "Do I take the higher offer and hope financing is approved?" Adam Fenn, president of Merit Asset Services in Henderson, said there's talk on Wall Street about a "double-dip recession," even as some data point to economic recovery. People are frustrated in their efforts to buy a home and there's not enough capital out there to finance purchases, he said. "It's kind of scary," Fenn said. "When you go for the highest and best offer, you get people bidding too high and the property ends up going back on the market. I think there's going to be a double-dip in values. They're going to go up and then come back down."

Obama to meddle with your retirement account? Administration considers forcing investors into Treasury debt – (www.wnd.com) The Obama administration appears to have come up with a novel way of financing trillion-dollar budget deficits – demanding IRA and 401(k) holders buy trillions of dollars in Treasury bonds. With the Treasury needing this year to see another $1 trillion in debt to finance the anticipated federal budget deficit, and the Federal Reserve about to discontinue its 2009 program of buying Treasury bonds for the Fed's asset portfolio, the Obama administration is scrambling to find ways to sell government debt without having to raise interest rates. Bloomberg reported Friday that Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Mark Iwry are planning to stage a public comment period before implementing regulations that would require private investors to structure IRA and 401(k) accounts into what could amount to a U.S. Treasury debt-backed government annuity. CNBC's Rick Santelli broadcast the rumor the same day from the trading floor during CNBC's "Power Lunch" show. Spokesmen from both the U.S. Treasury and Department of Labor confirmed to WND that the federal agencies about to enter a pre-regulation public comment phase on the proposed rule change. But the agencies are getting serious pushback from the mutual fund industry, objecting to what some financial planners see as a government attempt to divert hundreds of billions of dollars of private retirement accounts into federal government debt, regardless whether the investment in Treasury bonds is in the best interest of the retirement-oriented investor. On the Department of Labor website, the transcript of a Dec. 9 webchat with Borzi confirms the Employee Benefits Security Administration is about to issue a Request for Information on how annuity lifetime options should be structured into a wide range of defined contribution retirement plans, including 401(k)s. Under ERISA, the Department of Labor regulates approximately 700,000 private pension plans, with approximately $4.7 trillion in assets. "Lifetime Income Options," code words for annuities, are also listed in the Department of Labor's regulatory agenda for the Employee Benefits Security Administration, issued Dec. 7 and filed in the Federal Register. The government's argument is that IRA and 401(k) investors lost principal in the stock market when the Dow Jones Industrial Average plummeted from a closing of 14,164.53 on Oct. 9, 2007, to 6,547.05 on March 9, 2009.

You saw this one coming... Union’s Health Benefits May Avoid Health Care Cadillac Tax Under Proposal - (www.bloomberg.com) The U.S. Senate proposal to impose taxes for the first time on “gold-plated” health plans may bypass generous employee benefits negotiated by unions. Senate Finance Committee Chairman Max Baucus, the chief congressional advocate of taxing some employer-provided benefits to help pay for an overhaul of the U.S. health system, says any change should exempt perks secured in existing collective- bargaining agreements, which can be in place for as long as five years. The exception, which could make the proposal more politically palatable to Democrats from heavily unionized states such as Michigan, is adding controversy to an already contentious debate. It would shield the 12.4 percent of American workers who belong to unions from being taxed while exposing some other middle-income workers to the levy. “I can’t think of any other aspect of the individual income tax that treats benefits of different people differently because of who they work for,” said Chris Edwards, director of tax policy studies at the Cato Institute, a Washington research group that often criticizes Democrats’ economic proposals. Edwards said the carve-out “smacks of political favoritism.” Baucus, a Montana Democrat, is proposing to tax Americans whose health insurance is valued at a higher rate than what is offered to federal employees. About 40 percent of insured Americans have costlier benefits, and Baucus has said he is trying to set the level at which taxes would be imposed high enough so fewer people are affected.

Big Banks Accused of Short Sale Fraud - (www.cnbc.com) Just as regulators, lawmakers and all forms of financial oversight boards are talking about new regulations to guard against mortgage fraud and another mortgage meltdown, there appears to be yet a new mortgage fraud out there today, allegedly perpetuated by agents of, yes, the big banks. I was first alerted to this by Jeremy Brandt, the CEO of several companies that bring short sale agents, investors and sellers together. His companies include 1800CashOffer, HomeFlux.com and FastHomeOffer.com. Brandt has a huge network of short sale real estate agents, and over the past several months he's been receiving all kinds of questions and complaints about trouble with second lien holders. As we all know, during the housing boom, millions of Americans pulled cash out of their homes in the form of home equity loans and lines of credit. They also used "piggy back" loans in order to get even lower interest rates on their primary mortgages. Now, many of the borrowers in trouble, and many who are so far underwater on their loans that they don't qualify for any refi or modification, are choosing short sales as a way out. (Short sales are when the lender allows the home to be sold for less than the value of the loan). About 12 percent of all home sales by the end of 2009 were short sales, according to the National Association of Realtors.

Regulators seize three more banks in U.S. - (www.reuters.com) Regulators closed three U.S. banks on Friday, as deteriorating loans continue to claim community and regional banks reeling from the financial crisis. The Federal Deposit Insurance Corp said that Town Community Bank and Trust of Antioch, Illinois, and St. Stephen State Bank of St. Stephen, Minnesota, had failed. Other banks agreed to assume the deposits at those failed institutions. Barnes Banking Co of Kaysville, Utah, was also seized, and the FDIC created a bridge bank to protect depositors as they move their accounts to other institutions. The agency did not give the causes of their collapses. The FDIC has said that the pace of bank failures will remain elevated this year because of extensive loan losses tied to home mortgages and commercial real estate. Barnes Banking Co had about $828 million in total assets. Town Community Bank had about $70 million in assets, and St. Stephen State Bank had about $25 million.

Osborne to push for global bank levy - (www.ft.com) A Conservative government would push for a worldwide insurance levy on financial institutions, amid a growing outcry over banks paying what Barack Obama this week called “obscene” bonuses. George Osborne, shadow chancellor, said that it was “unacceptable” for banks to be paying large cash bonuses when they should be defending themselves against future disaster. On Friday, JPMorgan Chase, the US bank, kicked off the latest bank reporting season by announcing that it would pay $9.3bn (£5.7bn) in bonuses this year. Speaking to the Financial Times, Mr Osborne said that a Tory administration would support a new levy on banks – so long as it could be agreed by G20 countries – to protect the taxpayer from the costs of a future crisis. The aim would be to introduce a more permanent version of the bank levy announced by Mr Obama, designed to recover at least $90bn from up to 50 of the biggest institutions, including US units of foreign banks. The International Monetary Fund will report in April on the concept of a bank resolution fund – one of four options proposed by Gordon Brown at a G20 meeting last year. The prime minister’s idea of a Tobin tax, a small charge on foreign

Societe Generale Ordered to Stop Derivatives Trading in India - (www.bloomberg.com) Societe Generale SA’s Indian unit was ordered to stop selling or trading offshore derivatives by the nation’s capital markets regulator, which said the bank failed to provide fair and complete information about its trades. The Securities & Exchange Board of India gave Societe Generale, France’s second-largest bank, 30 days to reply or file an objection to the order, according to a statement posted on its Web site yesterday. The Paris-based company is the second overseas bank to be suspended from trading derivatives by the regulator in just over a month. Barclays Plc suspended sales of its exchange-traded notes linked to Indian stocks following a Dec. 9 order. Both banks gave incorrect details on the sale of so-called participatory notes, the regulator said. “Societe Generale completely failed in obtaining correct and complete information from the counterparties it deals with,” the regulator’s statement said. “Societe Generale is required to show cause as to why appropriate proceedings including cancellation of its certificate of registration as a foreign institutional investor should not be initiated.”

Massachusetts Senate Race a Health-Care Referendum or a Referendum on Anger and Abuse of Power? – (Mish at globaleconomicanalysis.blogspot.com) The special election is a health-care referendum, a reflection on widespread anger, and a reflection on abuse of political power, the latter not just about the Massachusetts Democratic Party. Anger is brewing everywhere to throw the bums out. Certainly Obama's decision to cram health-care legislation through no matter how poorly it is written does not help. Nor does his expansion of troops in Afghanistan sit well with the Democratic party, nor does the bloated military budget. On the Republican side, and with the "Blue-Dog" fiscal Democrats as well, his continuation of Bush's bailout policies have not played well. He is attempting to sidestep the bailout issue now with a tax on financial institutions, but by playing it both ways he looks disingenuous. Finally, Obama's viral support for unions is offensive to any clear-thinking person from either party, notably the Republicans but also the "Blue-Dogs". There are a lot of angry citizens, and a lot of reasons for citizens to be angry no matter what side of the aisle one is on. With Obama it has been politics as usual, only worse, frequently championing the worst ideas each party has to offer.

Friday, January 29, 2010

Landlords sitting on empty commercial space in New York - (www.therealdeal.com) Some landlords are waiting out the current down market in an unusual way. Instead of doing everything in their power to find tenants and taking lower rents, they've decided to sit on unused space. George Constantin, president and CEO of Heritage Realty Services, which owns office and retail properties around New York, said the company used that strategy for one of the largest retail spaces in Manhattan, at 420 Fifth Avenue. "What we did is essentially wait to make sure we got the best tenant at the best rent, because once we commit to a 10-year transaction, we don't want to commit to a very low rent," he said. "And [in 2008], the rents were quite low." Constantin said Heritage is now in discussions with a $12 billion retail company he would not identify to take the 74,000-square-foot space, adjacent to a Lord & Taylor store. "We're very happy with the tenant we are in discussions with … and then we also have a fallback tenant," he said. "And both of these are going to meet substantially higher rents than we could have achieved [earlier]." While "warehousing" space -- also known as "inventorying" -- may yield reduced income in the short-term, Constantin noted that it enabled his company to maximize its real estate value in the long-term.

Hawaii had 9,000 foreclosures in '09, up threefold - (www.pacific.bizjournals.com) Hawaii had nearly three times as many foreclosure filings in 2009 than it did the previous year, according to new statistics. Hawaii had 9,002 properties with foreclosure filings attached, including default notices, foreclosure auctions and bank repossessions. That adds up to one per every 56 homes, which earned the state the 15th spot on RealtyTrac’s list of year-end foreclosures, according to the report released Thursday by the Irvine, Calif.-based company. That was up from 3,185 Hawaii properties with filings in 2008, a 183 percent increase. Nationally, there were more than 3.9 million foreclosure filings in 2009 on 2.8 million properties, a 21 percent increase in total properties from 2008, according to RealtyTrac. Nevada had the highest foreclosure rate in the nation, with one in 10 homes receiving at lease one foreclosure filing in 2009, followed by Arizona and Florida. In fact, four states alone accounted for more than half of the nation’s 2009 total — more than 1.4 million properties in California, Florida, Arizona and Illinois combined received a foreclosure filing last year. Legislative and industry-related delays in processing delinquent loans helped prevent the year-end numbers from being worse, RealtyTrac CEO James J. Saccacio said in a news release.

Foreclosures top record in 2009, no end in sight - (www.marketwatch.com) The number of U.S. residential properties receiving at least one foreclosure filing jumped 21% in 2009 to a record 2.82 million, RealtyTrac, an online foreclosure marketplace, reported Thursday. The report also showed that 2.21% of all U.S. housing units (1 in 45) received at least one foreclosure filing during the year, up from 1.84% in 2008, 1.03% in 2007 and 0.58% in 2006. More foreclosure trouble ahead: The foreclosure crisis is far from over, according to RealtyTrac's Rick Sharga. The company will release its year-end report on Thursday showing foreclosures rose 20% over the previous year. He talks with Dawn Wotapka about some trouble spots and the outlook for 2010. "As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans," said James Saccacio, chief executive officer of RealtyTrac. Saccacio said that monthly foreclosure filings peaked in July at 361,000, then declined for four months before rebounding in December. He said short-term factors, including trial loan modifications, state legislation extending the foreclosure process and an overwhelming volume of inventory clogging the foreclosure pipeline contributed to the second-half declines.

The foreclosure process: alternatives and consequences - (www.naplesnews.com) Foreclosures in Southwest Florida have harmed thousands of families and decimated entire neighborhoods. Moreover, there have been numerous in-depth reports in both the print and broadcast media about this very topic over the last 24 months. Yet, at Collier County Foreclosure Task Force events held throughout this past year suffering homeowners still seek guidance about their options. For example, homeowners frequently ask if it is better to do a “short sale” or just let the house go through foreclosure. First, it is important to understand that there are two key documents in every real estate transaction: the promissory note and the mortgage. The promissory note reflects the agreement that the homebuyer makes with a lender to borrow money. The note will state the amount that is borrowed, the rate of interest, and the duration of the loan. The second document is the mortgage. When a homebuyer signs a mortgage at closing, the real property that is purchased is pledged as collateral to protect the lender against non-payment on the promissory note. There are several options available to homeowners who fall behind on their obligation to a lender other than outright foreclosure. These options include, but are not limited to: (a) modification/forbearance; (b) short sale; and (c) a deed in lieu of foreclosure.

Fed's balance sheet liabilities hit record - (www.reuters.com) The U.S. Federal Reserve's balance sheet rose to a record level in the latest week, boosted by its ongoing efforts to support the mortgage market, Fed data released on Thursday showed. The Fed's balance sheet -- a broad gauge of its lending to the financial system -- rose to $2.274 trillion in the week ended January 13 from 2.216 trillion in the prior week. After declining early last year, the balance sheet generally has been accumulating mass amid the Fed's asset-buying, or quantitative easing, program. Given that this program has led the central bank's holdings of agency debt and mortgage-backed securities to grow to more than $1 trillion, the balance sheet rise reported on Thursday came as little surprise. "It is probably expected," said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts. The rise in the balance sheet came on the back of a jump in its holdings of agency mortgage-backed securities, which rose to $968.59 billion in the week ended January 13 from $908.74 billion in the previous week. The Fed's holdings of agency debt totaled $160.83 billion in the week ended January 13 versus $159.88 billion the previous week.

BofA, Capital One credit card charge-offs rise - (www.reuters.com) Bank of America Corp and Capital One Financial Corp reported jumps in U.S. credit card charge-offs for December, suggesting consumers were stressed through the holiday shopping season. But delinquency rates slipped at those companies as well as at Discover Financial Services, which broke ranks to report a decline in its default rate, according to regulatory filings. Bank of America, the biggest U.S. bank, had the highest default and delinquency rates of the three companies that reported early on Friday. The bank said its rate of charge-offs -- debts the company believes it will never collect -- rose last month to 13.53 percent from 13.00 percent in November, reversing a three-month decline.

Short View: Mystery Treasury bids - (www.ft.com) Somebody likes US Treasuries. One or perhaps a handful of mystery investors appear to have made a big contrarian bet backing US government paper. The Treasury market is buzzing with speculation after data from this week’s sale of 10-year notes showed that 17.3 per cent of the $21bn on offer went to direct bidders – far higher than the average of about 7 per cent. This followed direct bidders taking a record 23.4 per cent of Tuesday’s $40bn of three-year notes. Most investors still prefer to bid indirectly, through large banks, which makes it more likely that a lot of the direct bid came from one investor unwilling even to let a dealer bank know its plans. Whether it is a group or a contrarian individual, the bid has implications if the pattern is maintained at future bond sales. Cutting banks out of the loop could increase volatility if it makes trading more nervous because dealers have less information. This has a cost to the Treasury because it would push yields higher to compensate for the uncertainty. What makes the idea of a big bet in the other direction particularly interesting is that prices are expected to fall, and yields rise as the economic recovery strengthens and stimulus is withdrawn. The yield rise has already begun for longer-dated notes – the 10-years sold on Wednesday yielded 3.754 per cent, up from about 3.43 per cent at the last sale in December. Yields on 30-year bonds, due to be auctioned on Thursday, were at 4.473 per cent before their December sale – which attracted only lukewarm interest – but had risen to4.67 per cent.

Britain’s unsavoury debt mire - (www.ft.com) Which country experienced the biggest jump in debt, relative to gross domestic product, over the past decade? A year ago, as the world reeled from the subprime mortgage crisis, most investors might have said America. And these days, countries such as Iceland, Dubai or Greece tend to spring to mind, in connection with deadly debt burdens. However, if McKinsey consultants are to be believed, the real leverage giant – at least among the big western economies – is actually the UK. After crunching the data, McKinsey estimates that the gross level of British private and public debt is now 449 per cent of GDP – up from 350 per cent at the start of the decade. And even excluding the liabilities of foreign banks based in the UK, the ratio still runs at 380 per cent – higher than any country except Japan (closely followed by Spain where debt has also spiralled dramatically, according to a McKinsey report issued today.*) That is sobering stuff, particularly for UK voters. However, it also raises a much bigger point. In the middle of the last decade, it was often frustratingly difficult to get any data on leverage levels, since it was an issue on which precious few policymakers focused. That was partly due to misplaced faith that financial innovation had made debt less dangerous than before. But finance officials and bank supervisors also tended to focus on pretty narrow ways of measuring leverage, that tracked, say, hedge fund debt (a popular obsession, in the wake of the collapse of Long-Term Capital Management fund.)

Thursday, January 28, 2010

U.S. 2009 foreclosures shatter record despite aid - (www.reuters.com) U.S. foreclosure actions shattered all records in 2009 and will do so again this year, with unemployment and wage cuts overcoming programs to remedy failing home loans, RealtyTrac said on Thursday. A record 2.8 million properties with a mortgage got a foreclosure notice last year, jumping 21 percent from 2008 and 120 percent from 2007, the Irvine, California-based real estate data company found. The loan failure rate -- and thus the fallout for home prices and the economy -- would have been even worse without foreclosure prevention programs and loan processing delays caused by sheer volume, the company said. In many cases loan fixes don't stick, however, and so a new record of at least 3 million properties getting a filing is seen in 2010. Filings include notice of default, auction sale or bank repossession. State, federal and private efforts to modify loan terms for at-risk borrowers either don't go far enough or are expanding too late to help many struggling homeowners on a permanent basis, many industry experts and economists agree. "Until the lenders start to get into principal balance reduction you're going to continue to see high redefault rates," Rick Sharga, senior vice president at RealtyTrac, said in an interview. "We haven't seen any appetite for that on the part of the lenders yet," he added. One in every 45 households got at least one filing last year, a rate almost four times that of 2006.

As Buildings Empty, Banks' Credit Woes Pile Up - (online.wsj.com) Commercial real-estate problems may be about to douse the recent rally enjoyed by regional banks. As banks start releasing fourth-quarter earnings this week, the losses and reserves tied to commercial real-estate loans could spike even higher than some analysts think. Regional banks could get hit hardest, given typically greater exposure to commercial property than their bigger brethren. The stress is building. This month, Reis Inc., a market research firm, announced sharp declines in rents and occupancies in all property classes, giving landlords less cash flow to service debt. Foresight Analytics estimates delinquencies on commercial real-estate loans held by banks will rise to 9.47% in the fourth quarter, up from 5.49% a year earlier. This could interrupt the 15% jump since early November in the KBW Regional Banking ETF, which tracks regional bank shares. The rally was partly triggered by the acquisitions of failed banks from the Federal Deposit Insurance Corp. by the likes of East West Bancorp. But nasty surprises could be lurking if Associated Banc-Corp.'s fourth-quarter earnings are any guide. The Wisconsin bank on Monday said the company took "additional steps" late in the quarter to perform a more extensive review of "criticized loans," particularly on its construction and other commercial-property debt. Blaming commercial real estate primarily, the company recorded credit-related charges of $405.1 million in the quarter, up significantly from $95.4 million for the third quarter and $65.0 million in the year-earlier period.

Freight trains carry 20% less cargo in 2009 than in the previous year - (www.latimes.com) The drop is a dramatic reminder of the brutality with which the recession cut demand for coal, lumber and other goods that make up the backbone of the economy. The nation's railroads had their worst year in decades in 2009, a dramatic reminder of the brutality with which the recession damped demand for coal, lumber and other goods that make up the backbone of the economy. Freight trains carried 20% less cargo last year than in 2008, according to a report by the Assn. of American Railroads, and the industry shed nearly 21,000 jobs. The 12-month period was the slowest since the association began keeping records in 1988. Among the most dramatic declines was a 33% drop in lumber and wood products carried by train, a key indicator of demand for new construction. Trains carried 34% fewer motor vehicle parts and 8% less coal. "Last year saw declines, most of them quite steep, in every major category of rail carload traffic," said John Gray, senior vice president of policy and economics for the rail association. "Railroads are happy to have 2009 behind them."

Schwarzenegger plan for gasoline taxes slammed as "bait and switch"-(www.sacbee.com) California drivers could save a dollar and change each visit to the gas pump under a tax swap proposed by Gov. Arnold Schwarzenegger. In an effort to free up money to balance the state budget, the governor wants to reduce the sales tax motorists pay on gas purchases while increasing the gas excise tax, also paid at the pump. The net result, state finance officials estimate, would be a 5-cent savings for consumers per gallon of gas in the next year. A Bee calculation based on this week's $3-per-gallon average in California puts the savings at 7 cents a gallon. The complex proposal – in the governor's 2010-2011 budget plan – is drawing sharp opposition from transit advocates, and scrutiny from public school officials – both of whom will take a financial hit. The change, if approved by legislators, starts in July. The temporary savings for consumers would then run through July 2011. Administration officials say the switch would help California close a $19.9 billion budget gap by nullifying laws that reserve most of the gas-pump sales tax for transit agencies. That would free up anywhere from a few hundred million dollars to more than a billion dollars for the state general fund. The total amount is disputed by the administration and transit officials. State finance spokesman H.D. Palmer said the plan has the added benefit of saving motorists nearly $1 billion at the pump in the coming year. "That's one of the pleasant aspects," Palmer said.

Like his wife, Phyllis, Joe Saunders was born with cerebral palsy. But it took a car accident a couple of decades ago to leave Saunders, now 74, in a wheelchair, with limited use of his arms and legs, unable to continue working as a rehabilitation center counselor. With the help of a caregiver from In-Home Supportive Services, the couple are able to remain in the small, fraying Woodlake home Saunders' parents bought in the mid-1950s. "This way, we maintain our dignity as citizens," said Saunders. "I like my dignity. We're in our own home. That's not degrading. That's what we call the golden years." The golden years are threatened, though. About 22,000 low-income elderly and disabled Sacramento County residents are in the middle of a fight over state finances. As part of his budget plan, Gov. Arnold Schwarzenegger has proposed eliminating IHSS, the state's fastest growing social services program, which pays caregivers to help the disabled and the frail elderly.

California Rating Cut Shows $20 Billion Gap Lifts Bond Costs - (www.bloomberg.com) California bondholders got an early glimpse of what the state’s budget-negotiation season may bring as a looming $20 billion deficit led Standard & Poor’s to cut its credit rating for the second time in less than year. S&P yesterday lowered its assessment on $64 billion of the most-populous U.S. state’s general obligation bonds one level to A-, four steps above speculative grade, saying a plan by Governor Arnold Schwarzenegger to erase the spending gap relies too much on proposals that may not succeed. It was S&P’s first downgrade of California since February, when it preceded Moody’s Investors Service and Fitch Ratings in lowering the state’s rating as lawmakers were locked in a stalemate over how to fill what was then a $46 billion gap. “This is déjà vu,” said Kenneth Naehu, who invests $2.5 billion in municipal bonds for Bel Air Investment Advisors in Los Angeles. A taxable California bond maturing in 2039 traded yesterday for as little as 97.90 cents on the dollar, to yield 7.73 percent. That’s down from 98.67 cents a day earlier, when the yield was 7.66 percent. The extra yield on California 10-year bonds was 1.30 percentage points yesterday compared with top-rated municipal securities. Last year at this time, the so-called yield spread on California 10-year debt soared above one percentage point, or 100 basis points, for the first time in more than a decade.